Expect the economy to see positive growth and performance in the next few years, an economist told commercial dealers at Bridgestone/Firestone's Bizcon 9 conference.
In light of uncertainties created by rising oil, raw material and commodity prices, Martin Regalia, vice president and chief economist for the U.S. Chamber of Commerce, said there are reasons to be optimistic about the economy's long-run potential. Consumption, production, disposable income and household wealth are all up, he explained. Consumption and production are forecasted to remain up in the foreseeable future.
Business investment in equipment and software also are up, while the unemployment rate has fallen to its current 5.2 percent from its peak of 6.4 percent a few years ago, he said. Consumption alone comprises two-thirds of the U.S. economy, and growing consumption creates a foundation for growth.
``When people have (money) they spend it,'' Mr. Regalia said. ``Every additional dollar of disposable income creates 55 cents of spending. We're seeing disposable income grow and grow the old-fashioned way. We're creating jobs and seeing positive wage growth.''
Mr. Regalia pointed out that since the 1981 recession to the present, the U.S. economy has seen only five quarters of negative performance, and the last two expansions have been the longest on record, both lasting 10 years. Because of this historical data, he predicted that the current economy-four years into its growth period-will continue expanding rather than slip into another recession.
``I believe we're in the midst of another fairly long economic expansion where we'll see economic growth at or above potential perhaps for another five, six to seven years,'' he said. He added that the most recent recession was ``odd'' because it was the first one in the post-World War II period where consumption-particularly housing and auto sales-remained strong instead of declining, and the economy saw no quarters of negative performance.
Because the skyrocketing prices of raw materials, rubber, metal and certain commodities are not posing a problem for the overall economy, Mr. Regalia predicted they likely will not be self-correcting.
Interest rates are rising, and he said to expect the Federal Reserve Board to keep raising short-term interest rates until they reach 4 to 4.5 percent. However, rates still are low enough not to impact the availability of bank financing.
``It's only when the economy only grows 3 percent or less for a prolonged period of time that we're likely to see the Fed skip a meeting or two,'' he said, adding that the financial markets believe the Fed has inflation under control because long-term rates aren't rising.